Yahoo Nears Investment in Snapchat–Sources

Evelyn M. Rusli And Douglas MacMillan were first to report that Yahoo plans to reinvest some of the cash it made from an early bet on Alibaba Group Holding in the mobile-messaging startup company Snapchat Inc. It wasn’t clear how much Yahoo planned to invest in Snapchat.

The story as it appeared on Dow Jones:
Oct. 3, 2014 2:37 PM EDT: Yahoo Nears Investment in Snapchat–Sources

Yahoo Inc. plans to reinvest some of the cash it made from an early bet on Alibaba Group Holding Ltd. in another fast-growing startup: Snapchat Inc.

The Internet portal and Snapchat have held talks that are expected to lead to an investment in the mobile-messaging startup’s next funding round, three people familiar with the matter said. The round hasn’t yet closed and is slated to value Snapchat at $10 billion. It wasn’t clear how much Yahoo planned to invest in Snapchat.

By betting on Snapchat, Yahoo may be looking to repeat its success investing in Alibaba. Yahoo paid $1 billion for a 40% stake in the Chinese e-commerce company in 2005, an investment that has yielded a massive stake worth tens of billions of dollars and helped Chief Executive Marissa Mayer buy time with shareholders while she attempts to turn around the struggling core business.

Spokeswomen from Yahoo and Snapchat declined to comment.

With the more than $5 billion Yahoo made by selling part of its stake in Alibaba, Ms. Mayer has committed to returning at least half of it to shareholders, raising questions about what she will do with the rest. An activist investor, Starboard Value LP, last week took a stake in Yahoo and pushed the company to explore a combination with AOL Inc.

Snapchat could become an important strategic partner for Yahoo, as it seeks new ways to distribute its content, apps and ads in the mobile world.

But at $10 billion, Snapchat also represents an expensive and risky investment in a startup that has yet to turn its popular mobile service into a business that generates revenue. The three-year-old company, whose app lets people send messages, photos and video that typically disappear after 10 seconds, has more than 100 million users. Snapchat is planning to debut a new service for vanishing news articles and advertisements in the coming weeks, people familiar with the matter said in August.

The move by a large tech company to back an up-and-coming startup at a lofty valuation resembles Microsoft Corp.’s 2007 investment in Facebook Inc., a deal that valued the three-year-old social network at $10 billion. The software giant beat out Google Inc. to make that investment, which multiplied in value and led to Microsoft’s strategic partnership with Facebook around its Bing search engine.

Yahoo is one of many potential investors that have held talks with Snapchat as the young company puts together a round of funding that would make it one of the world’s most valuable startups. Venture-capital firm Kleiner Perkins Caufield & Byers in May committed to invest up to $20 million in the round, two people familiar with the matter said last month. Alibaba considered an investment in Snapchat earlier this year and passed, according to people familiar with the matter.

At least two previous Snapchat investors, Institutional Venture Partners and DST Global, are also in talks to invest in the new round of funding, two people familiar with the matter said.

The funding will vault Snapchat into the ranks of the most valuable startups in the world, and perhaps one of the mostly highly valued startups in history to bring in close to zero revenue. Pinterest, which was valued at $5 billion by investors in May, began selling its first advertisements this year.

Write to Evelyn M. Rusli at evelyn.rusli@wsj.com and Douglas MacMillan at
douglas.macmillan@wsj.com

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